Presented by Tony GostlingDirector Membership, Outreach & China Missions

Canada China Business Council

Doing Business in China what to know in order to

survive

CCBC 简介

Facilitator – giving your business direct support when and where you need it.贸易的协助者－直接的加中贸易支持服务

Advocate – the voice for Canada- China bi-lateral trade and investment.贸易的倡导者－建立加中两国贸易和投

资的双向交流

Catalyst - giving your business the vital connections at the highest levels in China and Canada.贸易的推进者－搭建政府和商务决策者之间的桥梁

Nothing is impossible, buteverything is difficult

• China really opened to the West in 1978 however recognition by Canada of the PRC occurred in 1970

• Prime Minister Pierre Trudeau made his first official visit in 1973; he visited as a private citizen in 1961

• Deng Xiao Ping is considered the father of modern reform and is largely responsible for us all sitting here today talking about China

• "I don't care if it's a white cat or a black cat. It's a good cat as long as it catches mice.”

This was interpreted to mean that being productive in life is more important than whether one follows a communist or capitalist ideology.

• “Poverty is not socialism, to get rich is glorious”.

Prosperity was the new face of socialism, which used to mean government planning, but for the new China, it meant common prosperity, without abandoning communist principles. But, some were going to get rich ahead of others.

• Representative office• JV• WFOE• FICE

Your Chinese entity should always be owned by an HK holding company for many reasons

Types of business structures

• By 1949, most wealth in China was destroyed and the playing field was leveled

• Most companies were state owned but in 1998 54% of workers were employed by private businesses

• The rich in China are “nouveau riche”, meaning that the majority are from humble beginnings

• Their behavior in business is different than ours so the strategies need to be altered

• Polite and well organized but weak• If trust is given too quickly you can viewed

as an idiot• Want to make a quick deal• Well respected if they stand their ground• Westerners consider China just a cheap

labour source and this does not sit well

How are Westerners perceived

• Face is appearance over substance• Don’t take away face but be strong and don’t

show weakness• Guanxi is connections, simply stated• Be nice and give face to all levels as even the

lowliest bureaucrat can ace you • Finally, bribes are out, unless you like Chinese

prisons, but “gifts” with no strings are fine

The importance of face & guanxi

• A firm yes without a lot of discussion does not mean “yes we understand and now we can execute the plan”

• Rarely will they say “no,” but…• “We will consider this request”• “You have made an interesting proposal

and we need to digest it”• “We need to study this further”

• There is no China market, but many markets within China

• Central govt, provincial and local govts all operate independently with different laws and approval processes

• There are vast differences in people in China, north to south, east to west, city vs. country and Mainland vs. Taiwan and Hong Kong

• Companies fail when they fail to think “like a local”

• 0–29: 43.1% (2007) The generation without brothers and sisters. More worldly and open to new things and less traditional. Parents tend to be a bit more affluent. Creative, as most dot com’s from this group. Like things Western.

• 30–44: 26.7% (2007) “Open door generation of Deng Xiao Ping” - first generation to deal with foreigners, most of the “nouveau riche” are in this group. Largest English speaking group. Never suffered too much.

• 45–59: 18.2% (2007) This group grew up working in state owned companies, were at the tail end of the “Cultural Revolution,” don’t quite grasp privatization of business, little or no opportunity to develop their creativity.

• 60+: 12% (2007) This group survived civil war, Japanese occupation and the “Great Leap Forward”. Really don’t trust foreigners and many older ones are usually seen still wearing their Mao suits.

• China is governed by 1906 German Civil code• Contracts and agreements can be upheld in

court providing they are crafted correctly• Arbitration is most effective as China is a

signatory country to the New York Convention• Chinese contract law favours good faith• All agreements need to be enacted under

Chinese law as foreign judgements are meaningless and unenforceable in China

• Make sure all employees have a non-compete non-disclosure agreement in place

1. Short term focus• Many exporters are focused on surviving, and if

possible, on getting enough for the boss to get a new car and a mistress. Most need to demonstrate their wealth.

• An aspect of Chinese business culture pushes many to focus on the short term. It makes it extremely hard for companies to sustain a long- term investment aiming at improving the organization.

2. Lack of pride of workmanship• They are in business for money. Few

manufacturers in China care about nice workmanship, a new design, or a defect-free production run.

• It is very frustrating to explain to factory technicians that products must look better, and to realize that people nod politely (if at all) and actually don’t care. All they want to know is “what is the absolute lowest effort we can make?” Not a great customer retention strategy…

3. Focus on “making production”• Go inside a factory building, and you will

see everyone trying to get the products out of the door. In 95% of cases, the shop floor is an absolute chaos.

• The problem is, no one wants to stop the line when they notice bad quality, since they are paid by the number of pieces they make. As long as this attitude subsists, quality will be inconsistent.

4. Lack of respect for workers• Ten years ago, it seemed like the Chinese

workforce was endless. Unskilled workers were easily replaceable. Fear was an effective motivator (“follow the rules, or you are out”).

• The problem is, the situation has changed much faster than managerial methods. Training the operators and retaining them should become one of the top objectives.

5. Compartmentalization of activities• It is very common for factories to prepare

prototypes in one place, and to produce the corresponding order in another floor (or to subcontract it to a different company). But development, engineering, and production should work hand in hand.

6. No analytical accounting• To reduce costs, it is important to know where

they come from. Not only don’t many Chinese companies use analytical accounting tools, but their tax evasion tactics often deprive them of any accurate accounting!

• Many have two sets of books• They have no idea how much non-quality

(rework, re-order of components, discounts, lost customers) costs them, for example. So why make an effort?

7. No interest in best practices• Many factory bosses have copied the way

another manufacturer — often a previous employer — was organized. To them, the way to make money is to grow up, while keeping costs down… and occasionally screwing a few customers.

• In a lot of cases, many are usually not interested in running experiments or purchasing software/machinery to improve their organization. There is this lack of curiosity in new methods.

• Many companies use sourcing product as a springboard to market entry

• Canadian companies who have had success in sourcing in China did so by being prepared and spending money and time to prepare and maintain the business

• To sell local, you must think local- what applies in Canada may not be the case in China

Can companies succeed in China?

…and finally

Ultimately, whether you succeed or not in China depends on many of the same issues as doing business anywhere, and that is…

• Do your homework.• Make a top-down investment.• Allocate enough resources. • Put good people in charge, and • Stay on top of the project.

Thank you谢谢!

Tony GostlingDirector Membership, Outreach & China MissionsCanada China Business Council Suite 1501, 330 Bay StreetToronto, OntarioM5H 2S8416-954-3800 Ext 313tony@ccbc.com WWW.CCBC.COM